It is no surprise that partisan gridlock in Washington triggers widespread concern about the future of our health system. It is not just that there are worries about the future cost and availability of coverage for families. It is also that Congress seems quite unable to settle on a permanent framework for 18 percent of the entire US economy.

Still, we should temper our anxiety about deep disagreement and legislative paralysis hampering the long-term management of this vital part of the economy. That’s because there are at least three reasons for some cautious optimism.

First, the genius of our system of federalism allows organizational design innovation to evolve in the regulation and public management of our health care sector despite intense disagreement at the national level. For instance, when there are national-level disputes about the best way to achieve stable insurance markets to cover high-cost people at reasonable premiums, or to care for the frail elderly, state-led federalism allows alternative strategies to be tried and compared and agreement to emerge. That is currently happening because federal law gives the federal government power to grant waivers to states to modify some programs within the state’s borders. For instance, the Trump Administration currently is granting federal waivers to permit some states to experiment with “high risk pools” that subsidize high cost individuals while lowering premiums for families with lower average health costs.

True, such experiments do not always succeed, and the waivers tend to reflect the perspective of each federal administration, as well as the political culture of the state requesting a waiver. So there have to be safeguards. But this experimentation, over time, can significantly improve the operation of the health system. Not only that, state leadership and experimentation can also help a national consensus to develop in areas where there had once been deep disagreement at the national level. We saw this in the 1990s in the case of welfare reform, and more recently in the state-led acceptance of gay marriage.

Second, there is a growing recognition that there is much more to achieving good health than just spending money on medical care. We could save billions of dollars repairing hip fractures for seniors, for instance, by investing a fraction of that money in such things as safer bathrooms and non-slip carpeting. Meanwhile, tackling stress and abuse affecting young children can sharply reduce downstream mental health costs.

The problem is that while other countries achieve better health results by improving the balance between medical and social service spending, America is the outlier by over-medicalizing health. But the good news is that all over the country, often with federal encouragement, there are more and more efforts to incorporate non-medical services to boost health outcomes. For instance, Vermont’s “SASH” program coordinates medical and social services to improve health outcomes for the elderly. Meanwhile federal waivers are allowing state Medicaid programs to use funds on housing and social services that improve health. And new federal legislation permits Medicare Advantage plans to use some funds for health-related transportation and other non-medical services.

These initiatives mean the health system is gradually changing, quietly, and in a bipartisan way, despite gridlock at the national level. Over time the resulting change could be profound.

And third, there is the wild card of “disruptive innovation.” We tend to think of health care innovation only as breakthrough drugs and surgeries, or perhaps organizational developments like the growth of local urgent care centers and telemedicine. But far more radical change can happen when huge new players enter an industry. Remember how Steve Jobs and Apple transformed the music industry, or how Amazon upended not only the selling of books but the selling of everything.

The health industry is ripe for a similar dramatic transformation from the outside. After all, except for new technology, the hospital and doctor’s office model has changed little in well over a hundred years. Powerful new entrants like the joint venture of Amazon, JPMorgan Chase and Berkshire Hathaway could be dramatic agents of change. There is a reason that people like Jeff Bezos and Warren Buffet are billionaires – they perceive opportunities for transformation that the rest of us don’t see. Whether this particular venture will be the Jobs-style gamechanger remains to be seen, but two things are clear. Transformative disruption is coming in health care. And federal legislation is generally irrelevant to this kind of radical industry restructuring.

These four patterns are going on to a large extent under the radar. They do not depend on bipartisanship and legislative breakthroughs in Washington. But they are altering the health industry in positive ways while we wait for Congress to get its act together.

On July 25th, the Centers for Medicare and Medicaid Services (CMS) proposed an important change to Medicare’s hospital outpatient prospective payment system (OPPS). Under the proposed policy, Medicare would pay the same amount for certain common types of visits to “off-campus” hospital outpatient departments (HOPDs) as it would for the same type of visit to a physician’s office.[1] This rule change would result in significant savings for Medicare and its beneficiaries and foster greater competition in the physician services market, although hospitals would not welcome this reduction in their payments.

While the proposed rules are an important step in the right direction, the CMS proposal applies to a relatively limited set of services. We believe that site-neutral payment should ultimately be applied to a much broader set of clinical services, similar to those included in the 2014 MedPAC recommendations, and at both off-campus and on-campus HOPDs, as well as at ambulatory surgery centers. We do not have the legal expertise to evaluate how much progress CMS could make on its own and how much would require legislation, but we strongly believe that site neutrality is good policy for Medicare, Medicare beneficiaries, and the health care system as a whole. We therefore recommend that CMS and, if necessary, Congress, move expeditiously to implement site-neutral payment as broadly as possible in the Medicare program.

Site-of-Service Payment Differentials are a Major Problem

Historically, Medicare has typically paid a higher rate for the same service when performed at a HOPD rather than a physician’s office. For instance, at an off-campus HOPD built before November 2015, Medicare paid about $158 for a clinic visit for an established patient in 2017, whereas it paid about $74 for a similar visit in a physician’s office. In this instance, if the visit occurred in the physician’s office, Medicare would save $67 and the beneficiary would save $17 in coinsurance.[2]

Many policymakers, including CMS Administrator Seema Verma, correctly see these disparate payment rates as wasteful because physician offices can deliver many services just as safely at lower cost to the program. Additionally, site of service payment differentials create an incentive for hospitals to acquire physicians’ practices and rebrand them as HOPDs, causing the magnitude of this problem to grow over time.

Increased hospital ownership of physician practices can also drive up costs for private payers by increasing the prices they pay for physicianservices and possibly hospital services as well. It is not fully understood why hospital ownership of physician practices increases prices, but multiple channels appear plausible. Most directly, private payers, like Medicare, commonly pay more for the same service when it is delivered in an HOPD rather than a physician’s office. Additionally, bringing independent physician practices together under the hospital’s ownership likely enables the hospital to negotiate higher prices for physician services because it has greater leverage than the practices had individually. And hospital-owned physician practices are far more likely to refer their patients to the hospital and its affiliated specialists, which may weaken insurers’ ability to steer patients to other, lower-cost providers.

While site-of-service payment differentials are not the only factor driving hospitals to acquire physician practices, they likely do play some role and are perhaps the most straightforward to address. Embracing a policy of site-neutral payments could thus save Medicare a considerable sum of money while simultaneously generating savings for private payers by addressing one driver of provider consolidation.

CMS’ proposed OPPS rule changes are not the first move towards site-neutral payment in Medicare in recent years. The Bipartisan Budget Act of 2015 (BBA) required Medicare to pay for services delivered at newly established off-campus HOPDs using rates based on the physician fee schedule, rather than the OPPS, thereby reducing the incentive for hospitals to acquire physician practices identified above.[3] At the time, the Congressional Budget Office (CBO) projected that this provision would save Medicare $9.3 billion over ten years.

However, this provision (and subsequent amendments to the provision) exempted certain sites of care, including dedicated emergency departments and all ambulatory surgery centers, as well as on-campus outpatient departments and off-campus physician offices that billed for services, rendered services, or were being built prior to November 2nd, 2015. These exemptions meant that hospital still have strong incentives to add more physicians to on-campus clinics and those off-campus clinics that had been “grandfathered” under the BBA, including by purchasing physician practices and relocating them to these existing facilities. The exemption for dedicated emergency departments also creates a perverse incentive to build more standalone emergency departments (which generally include outpatient clinics) in order to capture higher payment rates. Thus, while the BBA was an important step in the right direction, it preserved much of the excess spending that had provided the impetus for reform, while preserving many avenues—and strong incentives—to shift physician office services into the HOPD setting.

CMS’ Proposed Policy is a Positive Step, but More is Required

The new changes to the OPPS proposed by CMS would address some of the shortcomings of the BBA. Specifically, the CMS proposal would apply rates based on the physician fee schedule to clinic visitsat off-campus HOPDs that were grandfathered under the BBA, thereby aligning these payment rates with the rates for non-grandfathered HOPDs under the BBA. [4] CMS projects that this step toward extending site-neutrality would reduce the cost of care by $760 million in 2019 alone, with approximately 20 percent of that amount accruing in the form of lower coinsurance.

While these changes would surely be beneficial, we believe policymakers should go further towards achieving site neutrality. To begin with, we recommend eliminating the grandfathering of higher OPPS payments to existing off-campus HOPDs for all services, not just clinic visits. Removing this exception for all services, as was proposed in the Trump Administration’s fiscal year 2019 budget, would generate considerable additional savings. The Administration estimated these savings at nearly $34 billion over the next ten years (2019-2028), while CBO estimated smaller, but still significant, savings of $13.9 billion over the same time period. These estimates indicate that broadening CMS’ proposal in this way would likely generate significant additional savings.

Policymakers should also align the payments to on-campus HOPDs with those paid to freestanding physician practices where possible. In a 2017 report, the Medicare Payment Advisory Commission (MedPAC) estimated that instituting full payment neutrality for clinic visits at both on-campus and off-campus HOPDs would save Medicare $2 billion per year, which indicates that expanding CMS’ proposal in this way would also increase savings considerably.

Ideally, however, policymakers would move toward payment neutrality for all services delivered in on-campus HOPDs that can be safely delivered outside of a hospital. In 2013, MedPAC identified 24 Ambulatory Payment Classifications (APCs) for which quality was equivalent across sites of service and for which there were no additional advantages for performing in a hospital setting. They also identified 42 APCs for which quality was comparable but for which hospital settings provided advantages that justified a slightly higher facility fee. Broadly speaking, these were services that sometimes benefited from hospitals’ unique capabilities, like 24-hour operations or the availability of back-up and specialists, but did not absolutely need to be performed in a hospital setting. Consequently, MedPAC recommended equalizing the payments for the 24 equivalent services and reducing the differential for the comparable 42. Recent estimates of the cost savings of this type of broader policy are not available, but could be considerable.

As noted earlier, moving toward greater site neutrality would have spillover benefits in private insurance by reducing hospitals’ incentives to acquire physician practices, which may enable private insurers to secure better prices. This effect could be magnified if Medicare’s policy change emboldens private insurers to also curtail facility fees.

Conclusion

We applaud CMS for its proposal to expand site-neutral payment in Medicare, but much more remains to be done. For that reason, we are encouraged that CMS’ proposal solicited comment on ways it could further expand site-neutral payment in future rulemaking, and we encourage CMS to be as aggressive as it can be in the years to come. We would also encourage Congress to consider further action in this area, as Congress can likely implement more comprehensive site-neutral payment reforms—and implement them more quickly—than CMS can on its own.

[1] “On-campus” refers to those departments within 250 yards of main hospital buildings or a remote hospital location. All other departments are considered “off-campus.”

[2] Beneficiaries without supplemental coverage will benefit directly from lower coinsurance. In other cases, the benefits will accrue to whoever finances beneficiaries’ supplemental coverage, which may be beneficiaries themselves, their current or former employers, or state and federal governments.

[3]Technically, the BBA requires that the relevant services be paid for “under the applicable payment system.” In almost all cases, that system is the physician fee schedule. For operational reasons, CMS has not literally paid the existing physician fee schedule rates for these services. Rather, it has applied a proportional reduction to OPPS rates designed to ensure that the payment rates for services delivered at non-grandfathered off-campus HOPDs match physician fee schedule rates on average.

What’s the latest in health policy research? The Essential Scan, produced by the USC-Brookings Schaeffer Initiative for Health Policy, aims to help keep you informed on the latest research and what it means for policymakers. If you’d like to receive the biweekly Essential Scan by email, you can sign up here.

As the nation continues to grapple with the opioid crisis, clinicians treating patients struggling with chronic pain play a critical role. Yet, the information prescribers receive about their patients’ outcomes on opioids is often not adequate to make accurate appraisals of drug risks. A new study leverages behavioral insights and psychology to give prescribers personal experience with the risk associated with opioids. The researchers conducted a randomized trial between July 2015 and June 2016 of 861 clinicians who had prescribed to 170 patients who subsequently suffered a fatal overdose involving prescription opioids. Half the clinicians were randomly selected to receive a letter from the county medical examiner notifying them that a patient they had prescribed opioids to in the past twelve months had a fatal overdose. The researchers found that when a clinician learns that one of their patients had suffered a fatal overdose, they reduced the amount of opioids prescribed by almost 10 percent in the following three months. Furthermore, clinicians who received the letter were seven percent less likely to start a new patient on opioids and less likely to prescribe higher doses. The researchers note the results are particularly exciting given that this intervention is scalable nationwide, and that numerous, more traditional state regulations– like imposing mandated limits on opioids– have not been shown to have much impact. Full study here.

Many pro-competition policy interventions aimed at decreasing healthcare spending often focus on making the cost of care salient to consumers, thereby encouraging them to shop for low-cost services. However, a new study shows that consumers are unlikely to shop for lower-limb MRIs– one of the most shoppable health care services– even when it means they pay significantly more in cost-sharing. In fact, the results of the study show that less than one percent of patients used an online price transparency tool available through their insurer to shop for low-cost MRI providers and that patients’ exposure to out-of-pocket costs only explained 2.4 percent of the variance in the price of MRIs. Taken together, these findings show that patients are largely insensitive to out-of-pocket costs associated with MRIs. The researchers also find that driving distance could not explain patients’ unwillingness to price shop, since the average patient bypassed six lower-priced providers between their home and the location where they ultimately chose to receive their MRI. Ultimately, referring physicians have the greatest impact on where patients receive their MRI. The authors suspect that physicians who refer patients to MRI providers with high relative prices often do so because they are either unaware of the prices charged by the providers they are familiar with or because they are vertically integrated with high-cost MRI providers. The authors of the study conclude that healthcare funders must be aware of the importance of the suggestions made by referring physicians and take the appropriate steps to steer patients towards lower-cost options. Full study here.

“This study provides greater insight into a growing body of research findings showing the weakness of consumer price transparency as a cost containment tool. Network strategies have been shown to be far more effective.”

Diabetes medications, including insulin and new medications, can be cost prohibitive for individuals who lack insurance. A new study found that filled prescriptions for diabetes medications increased in states that expanded Medicaid during the two years following the ACA’s expansion of the program, compared to states that didn’t expand Medicaid. The researchers analyzed more than 96 million prescriptions filled using Medicaid insurance between 2008 and 2015. They found that states that expanded access to Medicaid had an additional 30 diabetes prescriptions filled per 1,000 people and the increase in prescriptions grew significantly over time. Furthermore, the researchers found that prescriptions increased for a variety of diabetes medications: they documented a 39 percent increase for first-line prescriptions typically given to newly-diagnosed patients and a 40 percent increase for prescription fills for insulin. Early treatment of diabetes can significantly impact health outcomes, an important consideration for policymakers as they grapple with how to move forward with healthcare reform and the Medicaid program. Full study here.

The Tax Cuts and Jobs Act of 2017 removed the tax penalty portion of the Affordable Care Act’s individual mandate, setting it to $0 in 2019. States could reinstate a similar penalty in order to encourage enrollment and stabilize the health insurance marketplaces, and in fact, some already have. A new report provides estimates of the effects of state-specific individual mandates on insurance coverage, nongroup insurance premiums, federal and state government spending, and demand for uncompensated care. Researchers found that if all states implemented individual mandates, the number of uninsured individuals would be lower by 3.9 million people in 2019, a decrease of 11.4 percent. They also estimate that marketplace premiums would be 11.8 percent lower in 2019, state mandate penalty revenues would amount to $7.4 billion and demand for uncompensated care would decrease by $11.4 billion. They concluded that states could mitigate the negative impact of the removal of the tax penalty through adopting their own, but concede that this is unlikely in several states for political or logistical reasons. Full study here.

The Affordable Care Act (ACA) included a provision that encouraged states to expand their criteria for Medicaid eligibility to include low-income adults at or below 138 percent of the federal poverty level. This provision took effect in 2014 and has since given tens of millions of new enrollees access to Medicaid. However, some observers worried that this sudden influx of Medicaid enrollees would overwhelm existing healthcare networks and degrade the quality of care offered by Medicaid’s managed care plans. The authors of a recent study use a difference-in-differences approach to compare the publicly reported quality of care offered by managed care plans in states that chose to expand their Medicaid programs with those that did not, and find no evidence that Medicaid expansion affected the quality of care offered by managed care plans in expansion states. While the authors did observe a great deal of variation in the quality of care delivered to Medicaid managed care recipients across and within states, their main results held true regardless of whether the state expanded Medicaid. This study suggests that the Medicaid population can be increased without undermining important measures of quality of care. Full study here.

As of 2015, approximately 20 percent of all traditional Medicare hospital admissions ended in a skilled nursing facility (SNF) stay. However, there is little evidence that increased SNF spending improves patient outcomes. Two Medicare bundled payment programs – the Bundled Payments for Care Improvement (BPCI) initiative and the Comprehensive Care for Joint Replacement (CJR) model shift financial responsibility for post-discharge care to hospitals and set incentives for stronger coordination between hospitals and post-acute care providers. A new study uses interviews with each of the 22 hospitals and health systems participating in these programs for lower extremity joint replacement episodes to understand their approaches to improving quality and controlling costs after discharge. The researchers identified two primary ways hospitals reacted to these models. The first was to reduce SNF referrals using risk stratification tools, patient education, home care supports, and linkages with home health agencies to facilitate discharges to home. The second was to enhance integration with SNFs through either sharing access to electronic health records, embedding providers across facilities, hiring or assigning dedicated care coordination staff, and creating platforms for data exchange. The researchers conceded that while some studies, like this one, have observed a decrease in SNF spending as a result of bundled payment, recent analysis of Medicare data shows persistent increases in the use of institutional post-acute care nationally, suggesting that this decrease may not be part of a larger trend. The impact of these organizational changes on patient outcomes and quality of care remains to be seen. Full study here.

In recent weeks, insurers in many areas of the country have unveiled the premiums they propose to charge for individual market health insurance policies in 2019. In setting premiums for 2019, insurers are taking account of several policy changes that will be newly in effect for the 2019 plan year, including repeal of the individual mandate penalty and Trump Administration actions to expand the availability of plans that are exempt from various Affordable Care Act (ACA) requirements. These policy changes are generallyexpected to cause many healthier people to leave the individual market and thereby raise individual market premiums.

In “How Would Individual Market Premiums Change in 2019 in a Stable Policy Environment?,” (PDF) Matthew Fiedler examines how premiums would change in 2019 absent these looming policy changes. Drawing on a range of data sources, Fiedler first estimates how insurers are performing in the ACA-compliant individual market in 2018, and then uses those estimates to evaluate how premiums would change in 2019 in a stable policy environment. The analysis reaches two main conclusions:

Insurers will earn large profits in the ACA-compliant individual market in 2018: Fiedler projects that insurers’ revenues in the ACA-compliant individual market will far exceed their costs in 2018, generating a positive underwriting margin of 10.5 percent of premium revenue, as illustrated in Figure 1 of the paper. This is up from a modest positive margin of 1.2 percent of premium revenue in 2017 and contrasts sharply with the substantial losses insurers incurred in the ACA-compliant market in 2014, 2015, and 2016. The estimated 2018 margin also far exceeds insurers’ margins in the pre-ACA individual market. These estimates for 2018 as a whole are broadly consistent with the results of a recent analysis of individual market insurers’ financial results for the first quarter of 2018 recently published by researchers at the Kaiser Family Foundation.

The estimated improvement in insurers’ margins for 2018 is driven by the substantial premium increases insurers implemented for 2018, which will almost certainly be more than sufficient to offset the loss of cost-sharing reduction payments and what appears likely to be another year of moderate growth in underlying claims spending. Prior analysis of insurers’ 2018 rate filings suggests that many insurers expected policy changes that are now scheduled to take effect in 2019, notably repeal of the individual mandate penalty, to take effect in some form during 2018, which may have led insurers to incorporate those policy changes into their premiums a year early.

In a stable policy environment, average premiums for ACA-compliant plans would likely fall in 2019: Fiedler’s analysis defines a “stable policy environment” as one in which the federal policies toward the individual market in effect at the start of 2018 remain in effect for 2019. Notably, this scenario assumes that the individual mandate penalty and limits on short-term, limited duration insurance policies remain as they were at the start of 2018, but does not assume the reversal of policy changes that were already in place at the start of 2018, like the end of CSR payments. Under those circumstances, insurers’ costs would rise only moderately in 2019, primarily reflecting normal growth in medical costs. Meanwhile, for reasons discussed in detail in the paper, it is unlikely that insurers would set 2019 premiums with the goal of keeping margins at their unusually high 2018 level. Downward pressure on premiums from falling margins would likely more than offset upward pressure on premiums from underlying cost pressures, so premiums would fall on net.

Indeed, Fiedler’s base assumptions imply that the nationwide average per member per month premium in the individual market would fall by 4.3 percent in 2019 in a stable policy environment, as shown in Table 2 of the paper. This estimate is subject to some uncertainty, primarily because of uncertainty about underlying individual market claims trends and about the margins insurers are likely to target for 2019. However, Fiedler estimates that average premiums would decline in a stable policy environment under a range of plausible alternative assumptions.

What’s the latest in health policy research? The Essential Scan, produced by the USC-Brookings Schaeffer Initiative for Health Policy, aims to help keep you informed on the latest research and what it means for policymakers. If you’d like to receive the biweekly Essential Scan by email, you can sign up here.

The Urban Institute has been using the Current Population Survey to study the uninsured population in America since 2011. In the latest version of this ongoing study, the authors detail how the characteristics of the nonelderly uninsured population have changed since the last update in 2015. The authors find that the overall uninsured rate fell from 12.2 percent to 11.1 percent between 2015 and 2017. The greatest coverage gains were among individuals with lower incomes, those with less education, young adults, and Hispanics. States that had expanded their Medicaid programs saw greater coverage gains than those that did not. In order to further decrease the overall uninsured rate, the authors recommend focusing additional outreach and enrollment efforts on the 7.5 million individuals who were eligible for Medicaid or CHIP and yet had no access to affordable insurance and the 3.1 million individuals eligible for large premium tax credits and CSR payments for non-group insurance. Full study here.

In an attempt to further expand access to primary care for low-income individuals, the Affordable Care Act included a provision that increased payment rates for specific services delivered by primary care physicians (PCPs) to Medicaid enrollees from 2013 to 2014. This provision was meant to incentivize PCPs to accept new Medicaid patients. Although the Medicaid payment rate increases contained in the ACA were considerable– constituting a 73 percent increase in aggregate– the authors find that they had no statistically significant effect on the number of Medicaid enrollees that PCPs saw. Even when accounting for each state’s Medicaid expansion status, no significant increases in physician participation in Medicaid were observed. The authors did however find that several states experienced nontrivial increases in the number of physicians seeing at least five Medicaid patients, but the effects were not nearly as strong as previous cross-sectional studies have suggested. The authors maintain that while this attempt to use a payment rate increase to encourage PCPs to accept new Medicaid enrollees was largely unsuccessful, these results do not necessarily show that payment rates can never be an effective tool for increasing physician participation in Medicaid. They cite multiple aspects of the ACA’s Medicaid rate increase, including an onerous attestation process and the limited duration of the policy, as limitations that could be corrected in future attempts to expand access for Medicaid enrollees. Full study here.

African-American men have the lowest life expectancy of any major demographic group in the United States. Although there are many underlying factors that contribute to this disparity, about 60 percent of the difference in life expectancy between black and white men can be attributed to chronic diseases– which can be treated with preventive care. A new working paper examines the results of a field experiment conducted in Oakland, California, which analyzed whether the race of the doctor affects the demand for preventive care among black men. After randomly assigning black men to black and non-black male medical doctors, the researchers found that those assigned to a black doctor elect to receive the same number of preventive services as those assigned to a non-black doctor before interaction with their assigned physician. After interaction, patients assigned to black doctors increase their use of all screening services by 16 percentage points compared to those assigned to non-black doctors. The researchers point to better trust and patient-doctor communication as potential mechanisms of this change, noting patients were 10 percentage points more likely to talk with black male doctors about other health problems and black doctors were 11 percentage points more likely to write notes about black patients compared to non-black doctors. These results suggest increasing minority representation in the healthcare system would go a long way towards reducing disparities in health outcomes and life expectancy. Full study here.

Electronic health record (EHR) adoption was promised to bring improved quality and efficiency to health care, but results thus far have been mixed-causing many hospitals and policymakers to question the value of public and private investments in EHRs. A new study uses a 100 percent sample of Medicare hospital claims from 2008 to 2013 and data on hospital IT to examine the relationship between EHR adoption and thirty-day mortality rates. The researchers quantified EHR adoption over time by using three distinct variables: each hospital’s baseline level of EHR adoption in 2008, the level of maturity of these baseline functions over time, and the rate at which hospitals adopted new EHR functions during the study period. Baseline adoption of EHR technology was associated with worse performance, with a 0.11 percentage point increase in mortality rate for every EHR function adopted in 2008. However, maturation of each baseline function was associated with a .09 percentage point decrease in mortality per year and each new function adopted per year was associated with a .21 percentage point decrease in mortality rate. The researchers also concluded that small and nonteaching hospitals received the majority of improvement in mortality rates from EHR adoption. Overall, the researchers concluded that while the adoption of new EHR functions may not lead to an immediate decrease in mortality rates, these technologies can have overwhelmingly positive effects if they are allowed to mature. Full study here.

Stability has long been an issue for the individual health insurance market, even before the Affordable Care Act. While reforms adopted under the ACA initially succeeded in addressing some of these market issues, market conditions substantially worsened in 2016.

Insurers exited the individual market, both on and off the subsidized exchanges, leaving many areas with only a single insurer, and threatening to leave some areas (mostly rural) with no insurer on the exchange. Most insurers suffered significant losses in the individual market the first three years under the ACA, leading to very substantial increases in premiums a couple of years in a row.

For a time, it appeared that rate increases in 2016 and 2017 would be sufficient to stabilize the market by returning insurers to profitability, which would bring future increases in line with normal medical cost trends. However, Congress’s decision to repeal the individual mandate and the Trump Administration’s decision to halt “cost-sharing reduction” payments to insurers, along with other measures that were seen as destabilizing, created substantial new uncertainty for market conditions in 2018.

This uncertainty continues into 2019, owing both to lack of clarity on the actual effects of last year’s statutory and regulatory changes, and to pending regulatory changes that would expand the availability of “non-compliant” plans sold outside of the ACA-regulated market. These uncertainties further complicate insurers’ decisions about whether to remain in the individual market and how much to increase premiums.

The condition of the individual market

In the states studied—Alaska, Arizona, Colorado, Florida, Iowa, Maine, Minnesota, Nevada, Ohio, and Texas—opinions about market stability vary widely across states and stakeholders.

While enrollment has remained remarkably strong in the ACA’s subsidized exchanges, enrollment by people not receiving subsidies has dropped sharply.

States that operate their own exchanges have had somewhat stronger enrollment (both on and off the exchanges), and lower premiums, than states using the federal exchange.

A core of insurers remain committed to the individual market because enrollment remains substantial, and most insurers have been able to increase prices enough to become profitable. Some insurers that previously left or stayed out of markets now appear to be (re)entering.

Political uncertainty

Premiums have increased sharply over the past two to three years, initially because insurers had underpriced relative to the actual claims costs that ACA enrollees generated. However, political uncertainty in recent years caused some insurers to leave the market and those who stayed raised their rates.

Insurers were able to cope with the Trump administration’s halt to CSR payments by increasing their rates for 2018 while the dominant view in most states is that the adverse effects of the repeal of the individual mandate will be less than originally thought. Even if the mandate is not essential, many subjects viewed it as helpful to market stability. Thus, there is some interest in replacing the federal mandate with alternative measures.

Because most insurers have become profitable in the individual market, future rate increases are likely to be closer to general medical cost trends (which are in the single digits). But this moderation may not hold if additional adverse regulatory or policy changes are made, and some such changes have been recently announced.

Actions to restore stability

Many subjects viewed reinsurance as potentially helpful to market conditions, but only modestly so because funding levels typically proposed produce just a one-time lessening of rate increases in the range of 10-20 percent. Some subjects thought that a better use of additional funding would be to expand the range of people who are eligible for premium subsidies.

Concerns were expressed about coverage options that do not comply with ACA regulations, such as sharing ministries, association health plans, and short-term plans. However, some thought this outweighed harms to the ACA-compliant market; thus, there was some support for allowing separate markets (ACA and non-ACA) to develop, especially in states where unsubsidized prices are already particularly high.

Other federal measures, such as tightening up special enrollment, more flexibility in covered benefits, and lower medical loss ratios, were not seen as having a notable effect on market stability.

Measures that states might consider (in addition to those noted above) include: Medicaid buy-in as a “public option”; assessing non-complying plans to fund expanded ACA subsidies; investing more in marketing and outreach; “auto-enrollment” in “zero premium” Bronze plans; and allowing insurers to make mid-year rate corrections to account for major new regulatory changes.

Conclusion

The ACA’s individual market is in generally the same shape now as it was at the end of 2016. Prices are high and insurer participation is down, but these conditions are not fundamentally worse than they were at the end of the Obama administration. For a variety of reasons, the ACA’s core market has withstood remarkably well the various body blows it absorbed during 2017, including repeal of the individual mandate, and halting payments to insurers for reduced cost sharing by low-income subscribers.

The measures currently available to states are unlikely, however, to improve the individual market to the extent that is needed. Although the ACA market is likely to survive in its basic current form, the future health of the market—especially for unsubsidized people—depends on the willingness and ability of federal lawmakers to muster the political determination to make substantial improvements.

What’s the latest in health policy research? The Essential Scan, produced by the USC-Brookings Schaeffer Initiative for Health Policy, aims to help keep you informed on the latest research and what it means for policymakers. If you’d like to receive the biweekly Essential Scan by email, you can sign up here.

Despite Congressional efforts to repeal and replace the ACA, as well as several actions taken by the federal government meant to hinder enrollment in the program, 15 states actually saw higher enrollment in their ACA marketplaces this year and total individual marketplace enrollment dropped by only 3.8 percent from 2017 to 2018– far less than many health policy experts predicted. Researchers from the Urban Institute interviewed stakeholders in five states to understand these trends. Their new report details individual state profiles and provides several cross-state findings. Price was seen as a main driver by interviewees of consumer decision-making and marketplace enrollment, with consumers drawn to lower-premium plans. In the states with increased enrollment, insurers mounted robust advertising campaigns, state officials publicly opposed repeal and replace efforts, and usage of social media was increased to promote enrollment (including new tools to more easily facilitate consumer selection). Further, open enrollment periods were extended past the six-week HealthCare.gov period. The researchers concluded that while 2019 will surely bring more changes and uncertainty about the fate of the ACA marketplaces, it will be up to the states to decide whether and how to continue to bolster them. Full study here.

Medicare Part D currently lacks an out-of-pocket cap; instead beneficiaries with high prescription drug spending pay five percent on all prescription drugs once they reach catastrophic coverage. A recent study found that more than one million Part D enrollees who were not eligible for assistance with their out-of-pocket drug spending reached the catastrophic coverage phase of their benefit in 2015 – more than doubling since 2007. Furthermore, the researchers found the share of beneficiaries reaching catastrophic coverage without a low-income subsidy increased considerably, from 18 to 28 percent, between 2007 and 2015. In terms of total Part D expenditures, the portion of Part D expenditures occurring in the catastrophic phase has also significantly increased over the years, from 18 to 37 percent. This is driven in large part by spending from beneficiaries without a low-income subsidy. The researchers estimate that implementing a cap for all Part D enrollees in 2015 would have raised premiums by only one to four percent – amounting to a monthly premium increase of only $0.40- $1.31 per member. Full study here.

Medicare’s Bundled Payments for Care Improvement (BPCI) is a voluntary pilot program that evaluates bundled payments for several common cardiovascular conditions. As annual costs of treating cardiovascular disease are projected to exceed $818 billion by 2030, bundled payments offer an approach for improving quality and reducing unnecessary resource use. A newly-released retrospective cross-sectional study of hospitals participating in BPCI aims to determine whether program participants were representative of US acute care hospitals and identify factors associated with participation. In comparison to nonparticipants, BPCI participants were larger, more likely to be privately owned or teaching hospitals, had lower Medicaid-bed day ratios, and were less likely to be safety-net hospitals. They were also more likely to have cardiac intensive care units, cardiac catheterization laboratories, and cardiac surgery on site. BPCI participants had higher discharge volumes for acute myocardial infarction and congestive heart failure, and lower 30-day risk adjusted readmission and mortality rates for these illnesses. Overall, the researchers suggested that selection bias may cause BPCI outcomes to have limited external validity, especially among small and safety-net hospitals with limited cardiac services. Full study here.

“This demonstrates how limited voluntary demonstrations are for learning about payment reforms. While mandatory demonstrations or even implementing reforms without testing more than administrative feasibility appear challenging for politicians, they are essential for reforming provider payment in a reasonable time frame.” – Paul Ginsburg, Director, USC-Brookings Schaeffer Initiative for Health Policy

Critics of rising levels of Medicare spending often point to the fact that approximately one quarter of the program’s annual spending goes to the five percent of beneficiaries that die each year. These critics believe that spending money on beneficiaries that are nearing the end of their lives is wasteful and should therefore be limited. However, a new study shows that it’s almost impossible to distinguish Medicare beneficiaries who will die within the next year from those beneficiaries who will not. Using advanced machine-earning algorithms on a Medicare claims dataset from 2007-2008, researchers were unable to reliably predict which Medicare beneficiaries would die in 2008. Furthermore, the beneficiaries that the model predicted had the highest mortality risk only accounted for a small share of total spending-beneficiaries in the top percentile of mortality risk (for whom death was still far from certain) accounted for less than five percent of total spending. These findings suggest that even when accounting for potential advancements in machine-learning algorithms, it is unlikely that Medicare administrators will be able to achieve significant savings by identifying patients for whom death is near certain. Instead, the authors suggest that researchers and policymakers focus on ensuring a high quality of care for very sick patients and on evaluating the impacts of specific healthcare interventions on survival rates and on the palliation of symptoms. Full study here.

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With the passage of MACRA in 2015, Congress combined and reformed existing physician payment incentives in Medicare to create the Merit-Based Incentive Payment System, or MIPS. MIPS’ goal was to encourage clinicians to deliver more efficient, higher-quality care, but many observers have raised concerns that MIPS will fail to achieve this objective, while also creating substantial administrative burdens.

On Friday, July 20th, the USC-Brookings Schaeffer Initiative for Health Policy hosted a conference to discuss whether MIPS is achieving the desired objectives and whether the program should be maintained, reformed, or even eliminated. Two expert panels convened. The first focused on experience with MIPS to date, and the second discussed whether the program should be reformed or replaced and, if so, how.

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The Affordable Care Act (ACA), through the individual health insurance markets, provided coverage for millions of Americans who could not get health insurance coverage through their employer or public programs. However, recent actions taken by the federal government, including Congress’s repeal of the individual mandate penalty, have led to uncertainty about market conditions for 2019. Market stabilization is currently the most critical regulatory issue that public policy officials are facing under the private insurance component of the ACA.

On Friday, July 13, the USC-Brookings Schaeffer Initiative for Health Policy hosted a conference on strategies for stabilizing the individual market. Keynote speaker Mark Hall presented his research findings on a new study, which examines the recent experience of ten states with respect to individual market stability, including Alaska, Arizona, Colorado, Florida, Iowa, Maine, Minnesota, Nevada, Ohio, and Texas. Two expert panels convened to discuss outlook for the individual market at both the individual state and national level.

What’s the latest in health policy research? The Essential Scan, produced by the USC-Brookings Schaeffer Initiative for Health Policy, aims to help keep you informed on the latest research and what it means for policymakers. If you’d like to receive the biweekly Essential Scan by email, you can sign up here.

Although productivity losses resulting from poor health create significant drag on the US economy, increases to labor productivity are not traditionally measured when evaluating the costs and benefits of new health technologies. A new study systematically analyzes the relationship between new drug treatments and labor productivity across several disease groups. The researchers examined more than 5000 clinical trials in a 15-year period, finding only 115 (2 percent) evaluated treatment effects on labor productivity. Of the studies with data, they found the largest gains were among infectious diseases (average 42.6 percent gain) and skin diseases (average 82.4 percent gain). Over time, new treatments generated a 30 percent increase in work productivity on average, and subsequent innovations maintained this level of improvement. The authors note that labor sector benefits should be taken into account when assessing the costs and benefits of drug innovation. Full study here.

Despite their proven ability to relieve some of the most urgent financial pressures associated with poverty in America, many US citizens eligible for safety-net programs like Supplemental Nutrition Assistance Program (SNAP), Medicaid, and Medicare fail to enroll. While barriers like transaction costs, lack of information, and social stigma make full enrollment in these programs unlikely, these factors do not fully explain why there is a sizable gap between the enrollment rates of Hispanics and the enrollment rates of African-Americans and non-Hispanic whites. By combining micro-data on immigrants detained under the Secure Communities (SC) program from 2008-2013 with data on take-up rates for SNAP and ACA signups, the authors show that fear of possibly revealing individuals in their social or familial network living in the country illegally has kept many eligible citizens from enrolling in safety-net programs. The authors find the activation of SC protocols within a community decreased the Hispanic take-up rate for SNAP benefits in that community by 22 to 34 percent and also lowered the number of Hispanics signing up for the ACA by 22 percent. Foregoing these benefits means that some Hispanic citizens may have to go without basic necessities like food or medical care, which could have long-term adverse effects on the health and financial wellbeing of vulnerable members of Hispanic communities. Full study here.

In an effort to cut costs, some policymakers have suggested reserving academic medical centers (AMCs) solely for the treatment of patients with complex or difficult-to-treat conditions. In order to determine which types of patients were most likely to benefit from care at an AMC, a new study compared thirty-day mortality rates for Medicare beneficiaries following hospitalization in both AMCs and non-teaching hospitals. The study found that treatment at an AMC was associated with lower thirty-day mortality rates, compared to treatment at non-teaching hospitals across the spectrum of patient severity for common medical conditions. Similar results were found for surgical procedures (aside from outcomes for low-severity patients which were no different across hospital type). Low-severity patients seemed to benefit the most from AMC care, with 17 percent lower odds of thirty-day mortality when treated at an AMC for a common medical condition as compared to 7 percent lower odds for high-severity patients and 13 percent lower odds for medium-severity patients. Variations in hospital technology accounted for some of these differences, but not all of them. The authors conclude that the better outcomes at AMCs apply to all patients treated — not only the sickest — and suggest that policymakers come up with a different approach to identify patients unlikely to benefit from AMC care. Full study here.

A new literature review summarizes and critically assesses the research on decision problems faced by pharmaceutical firms, with particular emphasis on their relationship and implications for public policy. The researcher focuses on three important decision areas faced by pharmaceutical firms: research and development, pricing, and marketing. Within R&D, the majority of studies analyzed provided evidence suggesting that raising reimbursements for pharmaceuticals stimulates innovation, though economists have not come to a clear answer as to whether pharmaceutical innovation is too high or too low and thus what measures policymakers should take given the associated risks of either under- or over- investing. When assessing pricing strategies, making new, effective drugs accessible to consumers is critical to a firm’s strategy. The literature gives definitive evidence that providing health insurance makes drugs more affordable to consumers, and thus increases access and use. In terms of paying for drugs, the researcher notes, “the model of quantity-based pricing appears creaky and out of date, but regulatory barriers in the US market stand in the way of rapid innovation in pricing.” Finally, public policy surrounding pharmaceutical marketing is strongly debated. Analysis of the benefits and costs of marketing must take into account whether marketing moves society towards both efficient levels of utilization and efficient levels of innovation. The dynamic and complex nature of both of how marketing impacts use (and access) and thereby influences future innovation leads the author to conclude that much remains unknown about the optimal configuration of policies and regulations towards advertising. The author notes that though major gaps and challenges remain in the research, economists also need to contend with the challenge of convincing non-economists, who remain skeptical about the relative importance of economic incentives, especially as we grapple with major policy challenges of pharmaceuticals. Full study here.